Income Taxes

9 Months Ended

Oct. 01, 2011

Income Taxes [Abstract]

INCOME TAXES

NOTE 9. INCOME TAXES

Cadence recognized a provision for income taxes of $0.5 million during the three months ended October 1, 2011 primarily resulting from tax expense on certain Cadence foreign subsidiaries, interest expense on unrecognized tax benefits and excess tax benefits from employee stock compensation that were allocated to equity which was partially offset by a tax benefit from the effective settlement of a foreign tax examination.

During the nine months ended October 1, 2011, Cadence determined that uncertain tax positions that were subject to the Internal Revenue Service, or IRS, examination of Cadence’s federal income tax returns for the tax years 2003 through 2005 were effectively settled.

Cadence recognized a provision for income taxes of $0.9 million during the nine months ended October 1, 2011, primarily resulting from tax expense for certain Cadence foreign subsidiaries and interest expense on unrecognized tax benefits which was partially offset by the $5.7 million benefit for income taxes from the effective settlement of the IRS examination, the $5.0 million release of deferred tax asset valuation allowance primarily due to the recording of deferred tax liabilities resulting from a business combination, and the tax benefit from the effective settlement of a foreign tax examination.

Internal Revenue Service Examinations

The IRS and other tax authorities regularly examine Cadence’s income tax returns. Cadence’s federal income tax returns beginning with the 2006 tax year remain subject to examination by the IRS.

In May 2009, the IRS completed its field examination of Cadence’s federal income tax returns for the tax years 2003 through 2005 and issued a Revenue Agent’s Report, or RAR, in which the IRS proposed to assess an aggregate deficiency for the three-year period of $94.1 million. In August 2009, the IRS revised the proposed aggregate tax deficiency for the three-year period to $60.7 million. The IRS contested Cadence’s transfer pricing arrangements with its foreign subsidiaries and deductions for foreign trade income. In June 2011, the Appeals Office of the IRS, or the Appeals Office, provided Cadence with copies of the settlement agreements that were executed by the Appeals Office resolving the previously disputed tax positions. As a result of this effective settlement, Cadence recognized a benefit for income taxes of $5.7 million in the Condensed Consolidated Income Statements for the nine months ended October 1, 2011.

The IRS is currently examining Cadence’s federal income tax returns for the tax years 2006 through 2009. Cadence believes that it is reasonably possible that the total amount of unrecognized tax benefits related to this examination could decrease during fiscal 2011 if Cadence is able to reach a resolution with the IRS. Cadence believes that the range of reasonably possible outcomes is a decrease in total unrecognized tax benefits of between $20 million and $30 million.